M&T's Earnings Fall On 2007 Market Woes

In accordance with generally accepted accounting principals, M&T Bank Corp. saw a bit more than one-fifth of its net income for 2007 evaporate as compared to the same time period 12 months earlier because of the downturn in housing prices and rising delinquency rates for alt-A products. A bright spot for the company was the strong growth of commercial loans in the second half of 2007.

Net income was $654 million in 2007 up 22% from $839 million in 2006. For the fourth quarter of 2007, diluted earnings per share were $0.60, compared with $1.88 in the year-earlier period. Net income for the recently completed quarter totaled $65 million, 69% less than the $213 million reported in the fourth quarter of 2006.

"The past year was marked by unprecedented turbulence in the financial markets and, in particular, in the residential real estate arena," noted Rene F. Jones, M&T's executive vice president and chief financial officer. "M&T has quickly taken the necessary actions to appropriately address a few areas of heightened concern. We have eliminated all but $4.4 million of our exposure to collateralized debt obligations backed by residential mortgages and have adequately reserved for losses inherent in the alt-A residential real estate loan portfolio."

He added that the company expects weakness in this sector to continue but that M&T's exposure to residential real estate has been appropriately provided for. He also noted that in contrast to much of the financial services industry, M&T's portfolio of home-equity lines of credit is performing well with low levels of delinquencies and charge-offs.

M&T experienced significant loan growth during the second half of 2007. Total loans, exclusive of loans obtained through acquisitions, increased $2.8 billion, or 6% (13% annualized), from June 30 to Dec. 31, 2007, including growth in commercial and commercial real estate loans of $2.2 billion. During the fourth quarter, total loans, exclusive of loans obtained through the acquisitions, increased $1.8 billion, or 4% (16% annualized), including growth in commercial and commercial real estate loans of $1.6 billion.

However, lower real estate values and higher levels of delinquencies and charge-offs contributed to increased losses in M&T's portfolio of alt-A residential mortgage loans. Declining real estate values also contributed to the recognition of an additional reserve on loans to two residential real estate builders and developers. Taking these factors into account, the company increased the provision for credit losses to $101 million, or $48 million more than the $53 million of net charge-offs, $15 million of which resulted from a change in the classification of residential real estate loans as non-accrual.
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